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Monday, January 24, 2011

Pascal Lamy speech on the rise in food prices...

Director-General Pascal Lamy, in his opening address to the Berlin Agriculture Ministers’ Summit on 22 January 2011, said that “trade plays or can play a better role in addressing the rise in food prices and tackling food insecurity. Trade is part of the solution, and not part of the problem.”

His selected speech details....

Today I would like to focus my comments on the rise in food prices, since it is impossible to speak about agriculture without addressing what has become a major preoccupation across the globe.Barely out of the 2008 food price crisis, the world appears to have entered yet another phase of higher prices.Rising food prices are now stoking global inflation, not to mention political unrest of proportions that we could have seldom imagined.This topic is, of course, right at the centre of the G20's priorities.And Bruno Le Maire will be informing us of progress in this regard.

I worry that whereas various reasons for food crises have been repeatedly rehearsed in the press, and many figures circulated — a serious analytical exercise of why and how the world appears to be experiencing repeated crises has yet to start.My aim in the few minutes that you accord me will simply be to create an analytical framework within which we can collectively brainstorm. I will be, as you would expect, positioning international trade in that framework.

World food consumption is driven by three principal long-term, structural, factors as you know:income growth rates, population growth rates and dietary preferences.The most extraordinary development of our times, of course, is that food consumption is also driven by energy production.In pumping biofuels into our tanks, we are in fact pumping corn, sugarcane, and other foods into our transportation systems.It is, of course, a matter of debate as to whether biofuels are transitory or structural, and will very much depend on how experimental biofuels policies across the globe fare, and the public's reaction to them.

Globally, we know that income is rising and will continue to rise, although unevenly. With rising incomes comes rising demand. Population growth rates, on the other hand, have been falling for almost 30 years now, and the world has certainly passed its peak population growth rate of the late 1960s. But the absolute rise in population remains.

In terms of dietary preferences, we know that at the global level, dietary preferences are converging — the so called “nutritional transformation”. There are many reasons for this, like the spread of food chains, and greater exposure to North American and European dietary habits (for better or for worse, I might add)! Meat, milk, and dairy consumption in the developing world, in particular, are rising.

Biofuels, as I said earlier, also add an entirely new dimension to the consumption picture. The OECD and FAO tell us that, if current policies continue, by 2019 about 13% of the global production of coarse grains will be used for ethanol, 16% of vegetable oil, and 35% of sugarcane.

In short, what this food consumption picture tells us is that demand for food will continue to grow. But what does the food production picture tell us then? Will world food production be able to keep up with this increased demand? Again, there are three main sources of growth of crop production: one, expanding the current agricultural land area; two, boosting the frequency with which that area is cropped; and, three, trying to boost actual yields (through mechanization, better irrigation, or biotechnology for example).These are the structural long-term options that are before us.

Having looked at the various factors that influence production and consumption, we must now turn to what it is that links them. At the global level, the link is established through international trade. Trade becomes the transmission belt through which supply adjusts to demand. It allows food to travel from the land of the plenty to the land of the few. When that transmission belt is disrupted through trade barriers, unexpected turbulence arises on the market.

But let us take a closer look, then, at these “trade barriers,” and their impact on the production picture. Export restrictions play a major role in food crises. There are other trade barriers too, which harm agricultural production, such as tariffs and subsidies, and which prevent food from being produced where this can be most efficiently done. But I would like to begin by export restrictions because of the very direct role they play in aggravating food crises. In fact, some analysts consider them the principle cause of the food price rise in 2008, for some of the most vital staples.

Clearly those that impose these restrictions have a logic, they do not wish to see their own populations starve. So the question then is what alternative policies could allow them to meet this goal? The answer to that question must reside in more food production globally, more social safety nets, and more food aid and possibly food reserves. I would argue that what we must at least explore is the exemption of humanitarian food aid from export bans.